1H22 core net profit of RM702m (+35% YoY) matched ours but beat street. Except Dialog, all OpCos contributed positively to the top line growth which was filtered down to the stronger core earnings, partly aided by lower D&A. FY22 headline KPIs were maintained although Axiata guided that it is likely to overachieve revenue and EBIT growth targets. Reiterate HOLD with unchanged SOP-derived TP of RM2.81. We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger, regulatory and economic risks are major concerns.

Within HLIB, exceeded street. 2Q22 core net profit of RM332m (-10% QoQ, +10% YoY) lifted 1H22’s to RM702m (+35% YoY) which matched our forecast at 53% but exceeded consensus full-year estimate at 58%. 1H22 one-off adjustments include tower disposal gain (-RM38m), forex loss (+RM773m) and others (+RM117m).

Dividend. 2Q22 / 1H22: None (2Q21 / 1H21: 4 sen per share).

QoQ. Turnover grew 4% led by XL (+11%), followed by edotco (+9%), Ncell (+7%), Smart (+6%), Robi (+5%) and Celcom (+1%), more than sufficient to offset the sole loser Dialog (-24%). However, core net profit fell -10% to RM332m on the back of higher D&A (+1%) and finance cost (+8%)

YoY. Top line was up by 5% thanks to higher contributions from edotco (+28%), XL (+13%), Smart (+13%), Robi (+5%), Ncell (+4%) and Celcom (+3%), while Dialog was the only OpCo that experienced decline (-24%). In turn, core earnings expanded by 10% partly aided by lower D&A (-1%).

YTD. For the same explanations as above, top and bottom lines gained 6% and 35%, respectively. Revenue growth breakdown: edotco (+24%), XL (+12%), Smart (+11%), Robi (+4%), Celcom (+2%), Ncell (-3%) and Dialog (-9%).

Celcom. Sub base experienced a total net churn of 82k QoQ in 2Q22 and ended with 9.5m subs as both postpaid and prepaid experienced attritions. Blended ARPU rose to RM44 (+RM1 QoQ) thanks to prepaid’s positive ARPU development of +RM1 QoQ to RM30, while postpaid’s was flat QoQ at RM80. LTE population coverage expanded to 96% along with smartphone penetration at 93%.

XL. Total base added 230k QoQ to 57.2m subs as both postpaid and prepaid sub bases gained and ended 2Q22 with 1.4m and 55.8m, respectively. Price hike boosted prepaid ARPU by IDR3k QoQ to IDR38k while postpaid’s was eroded by IDR1k QoQ to IDR97k. With the improved coverage and more affordable device bundle offerings, 91% of total base or 52.1m are 4G users generating 1,983PB of total traffic in 2Q22, +7% sequentially and +26% YoY.

FY22 headline KPIs. At constant currency, (1) revenue growth of mid-single digit; (2) EBIT growth of high single digit; and (3) capex of RM7.1bn. These are maintained although Axiata guided that it is likely to overachieve item (1) and (2).

Forecast. Unchanged.

Reiterate HOLD with unchanged SOP-derived TP of RM2.81 (see Figure #2). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and economic (in Sri Lanka) risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 29 Aug 2022